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OPINION

Editorial: Prop. 55 is bad tax policy, bad government

Proposition 55 appears on the surface like an easy initiative for California voters to approve this fall. It provides billions of dollars each year for kids and the needy, and it will not cost most of us a penny.

Who could argue with that idea?

Let us try.

Prop. 55 extends the personal income tax provisions that voters approved in 2012 through Proposition 30. That proposition, which won with 55.4 percent of the vote, increased sales taxes throughout the state by a quarter-cent and raised income tax rates on personal earnings of $250,000 or more.

Prop. 30 was a temporary tax and expires in 2019. Prop. 55 allows the sales tax to still expire but extends the temporary income tax on high-income earners for another 12 years.

In 2012, when Gov. Jerry Brown pushed for Prop. 30, the state had a $16 billion deficit. The money from the initiative all went to education: K-12 public schools and community colleges. And he promised voters that this would be a temporary infusion of money to help return money schools lost during the recession.

Our difficulty with Prop. 55 is threefold: who it targets, the breaking of a government promise and changes in the funding formula.

By continuing to increase the tax rate for wealthy Californians, the state maintains a tax stream that exacerbates an imbalance in our funding structure. We fully believe the wealthy should contribute their fair tax share to society. But we do not believe we can successfully build a sustainable government funding model if it is too reliant on such a small portion of the population. Roughly half of the state’s income tax revenue — the primary source of funding for our state government — comes from the wealthiest 1 percent of the population.

This is another example of how California continues to use patches to shore up its tax revenue. This allows the Legislature to avoid the hard, politically unpopular work of fixing the state’s tax structure.

Prop. 30 was sold to all of us as a temporary tax. Now it is not. Gov. Brown, the leading advocate for that measure, is neutral on Prop. 55, which was created by an ad hoc group of unions and advocacy groups for education and health care.

It clearly reneges on the promise made to voters only four years ago. The state now has a surplus and has built up its “rainy day fund” for emergencies.

The problem is, if the state does allow the revenue from Prop. 30 to go away, then it could fall back into a deficit as early as the 2018-19 fiscal year, according to the Department of Finance. That means more cuts to existing programs, including schools.

Which brings us to how the Prop. 55 pie would be divided. All of the Prop. 30 revenue went to schools. Last year, that meant more than $8 billion. Of that, K-12 schools in Ventura County received $177 million and community colleges in our county got $21.2 million.

Prop. 55 starts with fewer dollars (remember, the sales tax increase goes away). It would raise an estimated $4 billion to $9 billion a year. Only half of that would go to schools, instead of all of it. Some would go to the rainy day fund, but most of the remainder, up to $2 billion a year, would go to help fund Medi-Cal. That’s a new source of money to support that program, which is why the leading contributor to the Prop. 55 campaign is the California Hospitals Committee, followed by the California Teachers Association.

Prop. 55 is a prime example of what is wrong with the state initiative system, the state tax structure and state government.

It turns to voters to make complex funding decisions that should be handled by the Legislature. It would extend an imbalanced tax structure that perpetuates boom-and-bust funding cycles. If the wealthy have a bad investment year, then everything California government supports — from schools to health care to roads — suffers. And it proves, once again, that you cannot trust the promises made to voters by government.

This is an issue that can, and should, be resolved by the Legislature. If it is convinced there is a continuing need for more education funding, then it can pass a bill to continue this special tax on the wealthy. There is time in its next session to accomplish that without any loss of funding for schools.